Pre-IB Economics Practice Exam

The balance of payments splits into two main parts: the current account, which covers trade in goods and services, income, and unilateral transfers, and the capital/financial account, which records changes in ownership of financial assets and liabilities across borders. Purchasing foreign financial assets by residents is exactly the kind of cross-border financial flow the capital/financial account tracks, since it involves residents transferring funds abroad to acquire foreign assets. The other options—net exports, current transfers, and trade in services—are all components of the current account because they relate to trade and transfers rather thanto changes in financial asset ownership across borders.